In order to build your wealth, you will want to invest your money in various instruments. While it is feasible to invest for a long period of time, there are many needs that must be met in a short term; hence, this is where short term investments come into play.
People invest in short term investments for maximal returns in shortest time possible to meet the expected near future expenses, like taking that family vacation, renovating the house, annual medical bills and so much more. A short-term investment is also known as one as one of the safest bets to accumulate capital with the help of low risk investments since the investments are locked in for a very short period.
Although there is no single defined lock in period, locking in your funds for 7 days to 12 months can be classified as short term investments. Therefore, you should look for investment plans based on liquid, tenure and the risk involved.
Here is a look at how you can achieve more through short term investments:
1. Start Early
Short-term investments are focused to optimum returns when you invest your money without locking it for a longer period. Even though for massive results, one should focus of long-term investments; however, if you start early, you can make the best use of short-term investments plan.
Think of a snowball rolling down a snowy mountain. At first, you’ll notice that the size of the snowball in negligible and it can be barely seen. However, as the snowball rolls down the cliff, it gets bigger. That’s how investing early works in real life. When you start you might not see the optimum return but with passing months, the results can be seen. Additionally, when you start investing early if makes you a disciplined person in case of financial planning and saving up for near by future goals.
2. Diversify your Portfolio
Suppose, you invest all your money in stocks, there are chances of risks involved in case when the market falls. This implies that you must be prepared for the loss. However, there are ways in while you can reduce the loss that might experience, like by diversifying your financial portfolio.
There are financial instruments like ULIPS, which allows diversification while you invest your money for a short period and gain maximal results. There is a definite lock in period with ULIP which was increased from 3 years to 5 years in 2010 as per IRDI. ULIPS is one of the best investment plans for 5 years since it allows you to diversify your investment portfolio by switching between equity and debt during the lock in period.
Diversifying your portfolio is crucial during short-term investments because minimizing loss is as important as maximizing gains. Therefore, when you are prepared for the loss, you achieve more with your short-term investment.
3. Invest in Tax Exemption Instruments
There are three things that are certain in life, bills, taxes and death. Though, thankfully, you can save yourself from tax traps and achieve more by investing in financial instruments that provide you tax benefits. The best tax exemption investments are PPF (Public Provident Fund), life insurance and health insurance.
However, if you do not plan to lock in your money for a longer period, you should go for health insurance. Not only will it cover you and your family for any medical crisis, but also takes away your burden of tax. The tax exemption is there because the premium paid for health insurance reduces your taxable income and hence provide tax benefits.
Additionally, it is good to start investment in start of a financial year since it helps you plan your tax-saving investments, thus meeting your financial goals. With a tax exemption investment, you can save your hard-earned money from getting depleted at the time of taxation.
So, make sure that you keep these points in mind while choosing the right financial instrument to make your money grow to meet your financial goals.